Technology for Better Businesses: The Importance of Value-Driven Finance Solutions

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results with your host, Megan Meese. Let's jump right in.

Megan - 00:00:18: Today my guest is Michael Tannenbaum. Michael is the Chief Operating Officer and Chief Financial Officer at Brex, where he aims to build a culture of financial discipline while empowering global customers to reach their full financial potential. Michael, thank you very much for joining me on today's episode of CFO Weekly.

Michael - 00:00:50: Thank you for having me.

Megan - 00:00:51: Yeah. Today we're going to be discussing the importance of investing in value-driven finance technology and how technology can enable businesses to run more efficiently. And I'm looking forward to this conversation, so let's jump right in.

Michael - 00:01:05: Awesome. Excited to have this conversation.

Megan - 00:01:07: Yeah. First and foremost, let's start with you and how it is to where you got to where you are today.

Michael - 00:01:12: Hi. Well, I started my career at JPMorgan in investment banking and I actually started in Bank MNA, which is very topical right now because of all the fallout that we're seeing with Silicon Valley Bank and other banks. So that was the kind of work that I was doing early on in my career out of college. And then I worked at a private equity company. But I always wanted to be in an operating company and in a finance role within an operating company. My dad is a CFO, so I kind of grew up with that around the house. And when I got to San Francisco at that private equity company, I spent a lot of time trying to get into fintech and into an operating role within a fintech company. I joined SoFi, which is an online lender, in the student loan space and now has expanded beyond that as around the 75th person. And then that grew to about 1100. And then from there, I left SoFi. I ended up being the Chief Revenue Officer there, and then I left to join Brex as the first employee here in 2017. And I joined here as the CFO, which I always say as kind of a joke, is that there were only three people, so I wasn't really the chief of anything. But over time, Brex has grown and I'm the COO and CFO now, and we're about 1100 people and we're about five and a half years in for that.

Megan - 00:02:42: Wow. So what excited you about Brex? What led you to join when the team was just three, including you?

Michael - 00:02:49: So I was interested in joining a startup. That was my working plan while I was at SoFi was to get experience and then do it on my own in some form. And so I was open to starting. And then I think a combination of just team and market, which are probably the two most important things, certainly in an early-stage company and probably in any company. But I met Henrique and Pedro. They were very young. They're still young, but at the time they're about 2021. And they had built a business in Brazil. And I thought it was interesting that they had been so successful, so young, and so I was paying attention. And then just on the market while I was at Sofi for some time, I ran finance. And I recall the pains of dealing with the corporate card program and all of the people requesting cards and expense management and receipts and the drama of people not wanting to pay personally or people wanting to pay personally so they could get the rewards. And I just was like, wow, this is a pain point. And if somebody solves this, I think it could be really valuable, especially with an expense management angle, which is sort of what companies and CFOs are looking for from credit cards, is expense management.

Megan - 00:04:09: And I saw that Brex just made an announcement today that they're adding travel to the platform. So can you tell us a little bit about that?

Michael - 00:04:19: Sure. Yeah. I think what you're seeing in today's world of expense management is that the buying criteria have changed. And the point of integration between corporate cards and expense management is so great that people who are looking for new expense management tools in any sort of moderately sized company or larger are looking for those to come combined with a corporate card. Because the value you unlock from a finance perspective, a budgeting perspective, integration with your accounting perspective, is so great. If you kind of combine these two things together and the control that you get by getting all the data from a credit card and then syncing that with expense management, that unlock is really valuable. So that's a big change in the market. And then on top of that, travel is just so highly integrated, or so deeply integrated into expense management. Probably 70% or so of the broad T&E. Right. Travel and Entertainment expenses are tied to a trip. And so because of that, the value in managing budgets and doing that across cards is compounded by having travel and controlling the travel booking. And that's what Brex has today.

Megan - 00:05:41: Yeah, that's awesome. I mean, I know from experience that managing travel and all the associated expenses that go with it is time-consuming and laborious and up to this point, super inefficient.

Michael - 00:05:56: Right? Definitely.

Megan - 00:05:57: So today you are the CFO and the COO, am I correct?

Michael - 00:06:02: That's right.

Megan - 00:06:03: So talk to me about how the role of CFO has evolved to allow this to happen. Because 20 years ago, I don't think we would have ever seen the COO and the CFO is the same person.

Michael - 00:06:17: Right? I think, yeah, having grown up in a household with a CFO, I think I've had I have at least that perspective.

Megan - 00:06:27: It's in your blood.

Michael - 00:06:28: It's in my blood. And I sort of saw how my dad was in public accounting and then went into the CFO spot that used to be more common. Still obviously common, but it's different now, at least from what I see in tech. Many of my peers have backgrounds that are broadly similar to mine. Of course, there are people that start in corporate, there are people that start in accounting, and there are people that frankly probably have no experience. Right. But the background that I have is a bit more common. And I think what I think has happened is that the role of the CEO has actually changed. And so that has in turn, changed the role of the CFO. And I think CEO historically would be the person who is looking out for the stock price, looking out for shareholders. And that's the main job. And I think that job has expanded for a variety of reasons that are probably outside the scope of this conversation to be broader stakeholder concerns. Right. The CEO is the representative of the employees. The CEO is being asked to focus on the customer. The CEO is being asked to focus, of course, on the shareholders. And the CEO is also focused on how that company interacts with broader issues in the world at large. That's just the reality of the job today, especially for larger companies. And whether that was good or bad, it is. And I think that means that the CFO has in turn had to step into more of this role of protector of the stock price broadly, which includes it's just much more strategic function. And therefore you'll see a lot more CFOs taking kind of larger roles because they're responsible for this big piece of what so many people that are invested in the company care about.

Megan - 00:08:27: Yeah, I guess all of the C-suite roles are expanding as the world is just generally becoming more and more complex every day.

Michael - 00:08:36: Right, that's probably also true. But I think just in general, there's definitely, at least I feel in my job that I am the person who is looking to see how well Brex stock, will it be worth in a year. And if we do this or that, how will that change that valuation dynamic? And I think that is obviously the CEO is concerned with that too. But I think the CFO historically might have been more of more record keeping and administrative versus strategic. Not necessarily always, but I think it's shifting more in that direction.

Megan - 00:09:16: So how would you define value-driven finance technology, and what role does it play in Brex’s overall strategy?

Michael - 00:09:24: So, since we can edit it can you explain the term?

Megan - 00:09:29: I didn't put together this list of questions, but value is driven, I would take that to mean like, forward-looking. Historically, finance has always been just about recording historical information, whereas today it's more driving value, I guess, into the overall business.

Michael - 00:09:52: Yes. Okay.

Megan - 00:09:53: That's my take on it.

Michael - 00:09:54: Helpful. Thank you, Megan. So I think from a value-driven finance perspective. I see a lot of similarities to the way that the CFO role has changed, I think the tools and what people are looking for in those tools are also changing. And so you take a product like Brex as an easy example. Because I'm close to it, historically, back when I was at SoFi. When you're closing the month, you are tallying up all the receipts from everybody and reconciling. What was spent on the credit card and basically hoping that the credit limit or whatever minimal control you had overspend and the policy that you have that was all adhered to. Whereas with a product like Brex, you're setting a budget proactively and that budget is tied to business goals and that activity that's happening on that budget. Right. Say, to do this podcast, I needed to travel to a studio. I am normally a CFO and my expenses roll up into finance. But if I'm doing a podcast, maybe we consider that marketing. Right? And so I can move this expense between a budget tied to marketing versus a budget tied to finance and accounting in a way that it wouldn't have been possible with kind of a more traditional corporate card and expense management solution. And so what's happening is gone are the days where you're reconciling things at the end of the month or hoping that people stayed within policy. You're actually using the expense management and payments tools to enforce those policies and get real-time information as to how spending is occurring throughout the organization.

Megan - 00:11:41: And just kind of off the back of that. So Brex, does it have a dashboard or how does it help your clients kind of analyze all the data that they then have access to?

Michael - 00:11:57: It depends on how people want to access and use that data. I think one of the great things about Brex is that it supports a number of integrations within other BI tools and ERPs. So I think you don't necessarily, especially the larger you get as a company, you're not looking to have point solutions where you look at one thing and how it evolves over time. You want to see everything in context. So something like NetSuite or Looker or Tableau are going to be places where you'll do that. So Brex supports that. But at the same time, Brex is also providing insights into spending trends and areas of opportunity. And that's going to be something that's within the platform that's relevant to certainly the set of decision makers that manage the product.

Megan - 00:12:48: And does Brex integrate into an ERP or does it sit on top of it? How does it work? And additionally,, who's the ideal customer?

Michael - 00:12:58: Yeah, so Brex integrates with multiple ERPs and the ideal customer is typically it's going to be the controller, the VP of Finance, the CFO, someone somewhat Chief Accounting officer, someone in the accounting and finance department who manages and is responsible for expense management and broadly that group is responsible for all money movement out of the company. Right here a good finance department or accounting department or combined is always going to have controls around how money can leave the company. And expense management is probably the one part that touches the highest number of employees because expense management is generally dealing with high volume, lower dollar transactions versus, say, procurement, where you're dealing with small volume but higher dollar transactions. And so that team supervises Brex, implements Brex inside an organization, and then they would be responsible for piping that data into whatever ERP or business intelligence tool.

Megan - 00:14:06: And what do you think are the biggest challenges that are facing businesses today in terms of managing their finance and how can technology help solve these challenges?

Michael - 00:14:17: Yeah, a couple of big ones. One is around, I think, going global. So in just the way, people are working in general, more broadly. And then global is a subset of that. So I think right now, teams have really changed in terms of the rise of remote work and hybrid work and so off sites and work-from-home stipends and home offices, that's all changed. And so the way that people are working requires new forms of expense management because a much greater number of people outside of just sales and executives are like traveling or spending for work because they are either going to an off-site or they have a home office. And so that has meant that the proliferation of corporate cards and expense management inside a company has changed a lot. That's probably one, and then a subset of that is this concept of global hiring. And you're seeing lots of businesses, big businesses, being built to enable global hiring. And with global hiring comes global expense management. And so you have companies that are much earlier in their life cycle hiring abroad and doing it quite early. And so that generates a whole host of needs from the perspective of these employees. Right? They need to buy a computer. They may have a lunch that they want to go to recruit a candidate, whatever the expenses are, they're going to look for cards and expense management that works for that geography. You can't just send them to the US. Credit card and expect that that's going to then work in, say Brazil. And that person may want to be reimbursed. And if they are reimbursed, they want to be reimbursed in Brazilian Ray's eyes, right? Not in US dollars. And so there's just supporting this new workforce is another big piece of where Brex plays in here.

Megan - 00:16:15: And as the CFO of a startup, how do you balance the need to take risks, as any startup needs to, with starting to put controls into place and well, I guess risk and controls, how do you balance the two of those?

Michael - 00:16:33: Yeah, I think risk management has been I'm not sure if all CFOs consider risk management to be part of their job or not. I assume most do, but for me, risk management has it's always been a big part of this job. And where I've started, I have like five principles that I say that my team focuses on. And the first one is basically maintaining Brex’s risk management brand. And I think that at least in a financial company, your brand around risk management is so critical because people are trusting you with their money and so you can't screw that up. And so I always emphasize that. And specifically, though, when you're in a startup, you have to weigh the importance of risk management against the fact that especially early, you don't have that much to protect. Right? And so you can't spend all your time focusing on risk and downside when you don't even have anything to protect. Right? And so that's a big piece of it. So that's where sometimes someone who has years and years of risk management experience, say, at a large bank, their perspective is like, we have to protect the bank, which makes sense. But when you are a three-person company that has no commercial activity, you obviously can't manage risk in the same way you would at a 200,000-employee bank that operates globally. And so you have to change your risk appetite over time as there becomes more and more to protect. And I think the biggest thing you can do is to actually establish your risk appetite right, say, and make sure that's agreed upon at the management level. And so it's not about what Michael thinks versus what Megan thinks, but it's about what we agreed upon and maybe the board agreed upon as well. That's the risk that we're willing to take at this juncture and then that may change in a year as the company progresses.

Megan - 00:18:39: I love that advice. Thank you for sharing. How does Brex approach ethical and social responsibility? I know social responsibility has become such a big thing these days for companies, whereas 20 years ago, corporations and social responsibility just did not go hand in hand. So what is Brex’s stance on social responsibility? And where are you guys making investments?

Michael - 00:19:08: Yeah, and I think that gets to the conversation we were having about the role of the CEO and the role of the CFO. For sure. I think one area where we have been focused has been immigration. Both our founders are Brazilian immigrants and definitely, over the years we have made a lot of investments in trying to make it so that people who employees that are looking for visa sponsorship, that are looking for basic, just have been relatively generous on the visa front, for sure. And that's been an area that we've also done a lot of thought leadership around in terms of immigration policy and making sure that the country here continues to attract the best and brightest from around the world.

Megan - 00:19:54: Yeah, I guess that's one great thing that's come out of COVID it's really opened up the world as far as labor markets. And as you mentioned before, just hiring is not necessarily the greatest person here in the United States, but anywhere in the world.

Michael - 00:20:11: Yeah. And one other area where our CEO Pedro has been active has been around the concept of not really concept, but around mental health and specifically trying to normalize, especially the founder, the tech founder experience and talk about areas that founders don't necessarily have to know all the answers or it's okay to have concerns and to struggle with mental health. So he's been really active on that front and has put a bunch of information out there in terms of his own personal experience.

Megan - 00:20:52: That's awesome. So trends, what trends do you see in the future of finance, and technology, and how is Brex positioning itself to fill those needs? I know you guys just had the announcement today on travel, but what do you see in the future?

Michael - 00:21:11: Yeah, I think you're going to continue to see expense management and the integration between expense management and card and now travel, that that's going to be the default solution that medium-size and larger companies are looking for. I think you're going to see the workforce continue to globalize as you mentioned, and as a result, people are going to be looking for expense management and payment solutions that fill that new world. I think this concept of continuous finance is going to be an increasingly bigger deal. This idea is that you're not closing the month and then finding out how things went, but instead you're updated in real-time because your systems and your tools like Brex and others are giving you that data in real-time. And so this concept of, like, this monthly close that happens well into the next month and you're finally reporting on it almost at the time the next month is over, is changing. And that continuous finance concept is one that Brex is really behind.

Megan - 00:22:17: And what advice do you have for other CFOs or aspiring CFOs? If you could just offer one piece of advice to CFOs out there listening, what would it be?

Michael - 00:22:30: Well, to current CFOs, I am one, and I don't know that I'm in a position to to advise them, but I could give advice to someone who's aspiring to be one in which is to say that, you know, if you're going to be comma CFO, you have to be promoted to that role. And to do that requires, of course, a bunch of hard work and good luck and skill, but it also requires someone to put you in the role. Right, because CFO is ultimately appointed by a CEO, typically. And I think it's very important that you have a mentor or at least someone with whom you've had that conversation and who understands your ambitions to be in that role and just be candid and frank about that because ultimately, that has to happen for you to be in the position. And I think that you could spend a lot of time and energy working really hard and doing the right thing, but nobody knows that that's what you even want. Or frankly, the job is not available. And I think it's best to take that head-on.

Megan - 00:23:44: Yeah, that's great. Advice like mentorship and networking are two things I hear quite often that we all need to do more of.

Michael - 00:23:53: Yeah, certainly genuinely and thoughtfully. Absolutely. Sometimes when I hear networking, I think of, like, speed dating at a conference or something, and I think that's probably not the most effective way to become a CFO, but you never know.

Megan - 00:24:10: Lastly, as a finance leader and entrepreneur, what is it that keeps you motivated? What gets you out of bed in the morning and excites you about your day?

Michael - 00:24:20: It's similar to what advice I just gave, I think, being able to give. I was given a bunch of opportunities pretty young, and I think I deserve them, obviously, but at the same time, someone had to give them to me. And so I made a commitment to continue to do that for other people. And there's been a number of people that came with me from SoFi to Brex, or people that I brought in, that I had worked with previously to Brex, or just people that I found at Brex that I identified talent and helped them succeed in their career. It's really important to me. Maybe a lot of people say this, maybe they don't, I don't know. But for me, it's super important because I was given a lot of that early. And I want to make sure that happens for other people, too, because it completely changed my life. And I'm very grateful to the people that did that for me, which was generally Mike Cagney and Nino Fanlo at Sofi did a lot of that for me, which I was so grateful. But other people earlier in my investment banking career as well.

Megan - 00:25:23: Yes, very important to pay it forward, as I guess the saying goes.

Michael - 00:25:28: Yeah.

Megan - 00:25:28: Michael, thank you so much for being my guest today.

Michael - 00:25:31: Yeah, thank you for having me.

Megan - 00:25:32: Yeah. I've really enjoyed learning about you and Brex today, and I appreciate you taking the time to be here with us and all of our listeners. Please tune in next week, and until then, take care.

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